Effect on Labour Market

Businesses have promoted welfare reform because surplus labour is of little value to them unless it is desperate to work. Being able to draw on a large pool of unemployed, who want to work because of punitive welfare conditions, gives employers a huge advantage in their dealings with employees because they are easily replaceable. Polish economist Michal Kalecki pointed out that an employer has less authority if there is not fierce competition for jobs:

[U]nder a regime of full employment, ‘the sack’ would cease to play its role as a disciplinary measure. The social position of the boss would be undermined and the self assurance and class consciousness of the working class would grow... class instinct [of business leaders] tells them that lasting full employment is unsound from their point of view and that unemployment is an integral part of the normal capitalist system.

What is more, without quantities of unemployed people keen to get jobs it becomes more difficult to find experienced, suitably trained, workers and because demand outstrips supply the price of labour increases. On the other hand a surplus of labour in a deregulated labour market ensures a downward push on wages and in a more regulated market slows increases in wages.

The quality of life and attitudes of people who represent surplus labour, i.e. the unemployed, therefore are essential elements in the scheme to push wages down through labour market deregulation. The surplus labour must be kept in a stressed and anxious state of mind so that they will compete and under-bid for jobs on the labour market.

Filling Undesirable Jobs

Some jobs are hard to fill because they are dangerous, dirty, distressing, or dead-end and such jobs can either be filled by paying high wages or by requiring people to do those jobs for low wages because they won’t get welfare benefits if they don’t. Employers don’t want welfare payments to give unemployed people an alternative. Those who choose welfare over low paid, dirty and demeaning jobs are called workshy or labelled bludgers.

John Kenneth Galbraith pointed out in his book The Culture of Contentment that people who have the most enjoyable jobs also have the highest pay. This system is justified by the idea that those who are paid more have achieved their positions through merit and hard work. Yet the boring, tiring and demeaning jobs have to be done by someone and the existence of an underclass is useful to supply these workers, provided they are given no choice.

In some European countries foreigners are given working visas to fill such jobs. In other countries such as Australia, new migrants often fill them. In countries, like the US and Britain and to some extent Australia, an underclass of citizens provides a reservoir of workers for these undesirable and lowly paid jobs. But only if welfare does not provide a more desirable alternative. This is the real rationale behind recent welfare reforms.

The more people who are available to do an undesirable job, either because they are desperate for work having been cut off benefits or because it is a condition of their welfare benefits, the less the employer will have to increase the wages and ensure that their workplaces are safe and healthy to attract workers.

From its start, welfare was a safety net that enabled many job seekers to refuse some of the worst jobs offered... Since millions of recipients did not compete for jobs at whatever rock-bottom terms employers were offering, the labor market was not flooded with every single, desperate parent of a young child, displacing workers and driving down the earnings of the working poor and near-poor.

In some countries such as the US, Australia and Canada, welfare can offer more income than low paying jobs for families, particularly when health and housing benefits are taken into account, as many low paying jobs do not offer health insurance. For employers wanting to get workers into these low paying jobs, without raising wages, welfare provides direct competition. They therefore lobby governments to lower welfare benefits and to make recipients uncomfortable on welfare.

Even the International Monetary Fund (IMF) advocates reductions in welfare as a way of promoting economic growth. It advised the Australian government in 1998 to cut welfare spending and to put a time limit on unemployment benefits as has happened in the US. It also urged the government to do away with minimum wages and benefits.

The reduction of the welfare safety net and abolition of mimimum wages would ensure that wages for unskilled workers will go down even further than they have and remove any industrial bargaining power workers at the bottom of the hierarchy might have. In one case welfare workers were sent to a hotel to train as maids, paid only their benefit plus $30 a week by the hotel, in the midst of a labor dispute.

Elaine McCrate, from the University of Vermont, found that in states where welfare benefits were higher, so was women’s pay: “Statistically, an additional $100 in benefits was associated with women’s wages that were 2.5% higher.” And the Economic Policy Institute estimates that Clinton’s welfare reform measures will lower the wages of the bottom 30% of wage earners by almost 12%. Another study by the Russell Sage Foundation found that 30,000 workfare placements in New York alone would cause 20,000 job losses and reduce the wages of the bottom third of wage earners by 9%.

The jobs that former welfare recipients have been forced into as a result of the welfare reforms in the US tend to be low-paying jobs in wholesale/retail (including food) and in service industries. For example, in Texas 41 percent were employed in restaurant/fast food, clerical, or retail/sales jobs. The Journal of Labour Research has reported that the actual earnings of former welfare recipients, when they get a job, tends to be between $9000 and $12,000 per year which leaves them below the poverty line if they have one or more children. They tend to remain in these low paying jobs for long periods of time. The authors, from the Employment Policy Foundation, argue that taxpayers should take responsibility for assuring workers a minimum standards of living, not private employers.

Cheap Replacement Labour

Workfare also enables public works to be done cheaply with compulsory labour. In Baltimore, a campaign to raise the wages of city workers was immediately undermined by the new welfare reforms. Workers watched in horror as welfare recipients were brought on the job, working 30 hours a week for their $350 a month benefit, a rate of about $3 per hour. Because the State pays the benefit, the city council gets these welfare workers for free and regular workers are likely to be displaced.

The story is being repeated all over the country from New York to Los Angeles, where there are tens of thousands of welfare workers do public workfare jobs. In a 1997 submission on the Work Experience Program (WEP) in New York, the Migrant Employment Taskforce, stated:

While the program’s rules clearly state that WEP participants are trainees to be assigned work that city workers normally would not do, WEP assignees frequently do some of the work once done by employees who have retired, quit, been laid off... they are prominent in those areas which have suffered the greatest job cutbacks.

Benjamin Duchin, for the Fifth Avenue Committee claimed that same year:

Workfare takes away the entry level jobs that people used to get. There is now a hiring freeze in New York City. Why? Because WEP workers are doing the jobs. You go to the Parks Department and they have lost 2,000 jobs in the last couple of years but they have 6,000 WEP workers... There has been massive displacement - around 21,000 workers...

The payment of minimum wages to welfare recipients also undermines the position of those doing similar work whose wages are above the minimum wage. In the case of Brukhman v. Giuliani the calculation of workfare hours based on minimum wages rather than the normal wage for the type of work being done, was challenged. The case was won in the NY State Supreme Court in 1997 but lost on appeal after the state changed the legislation to say that workfare should be calculated on the basis of minimum rates. In Ohio, welfare recipients were being asked to work for below the minimum wage rate. The policy was rescinded after the threat of legal action by the Welfare Law Center and the Equal Justice Foundation.

However, in a major blow to proponents of work-for-benefit schemes who see it as a way of ensuring a downward pressure on wages, the US Labor Department has ruled that people on welfare who have to work for their benefits are entitled to the same labor protections as other workers including minimum wages, unemployment insurance, workers compensation and perhaps even overtime pay in some circumstances. Michael Tanner from the Cato Institute called this “the end of welfare reform as we know it.”

Australian legislation specifically excludes Work for the Dole participants from the entitlements workers normally enjoy such as superannuation, workers’ compensation, occupational health and safety and industrial relations protections. The legislation makes it clear that participation in Work for the Dole does not “create an employment relationship at common law.” Instead the unemployed people are covered by public liability and insurance organised by the Commonwealth government for them.

Business Support

Reference: John Greenwald, ‘Off the Dole and on the Job’, Time, Vol. 150 (18 August 1997); ‘The Muddled Maths of Welfare to Work’, The Economist, Vol. 342 (8 March 1997)

The benefits of welfare reform to business are so overwhelming that many companies clubbed together to ensure its success. A grouping of 500 companies, Welfare to Work Partnership, was organised by the White House to assist with this process.

The Partnership was founded in 1996 by the CEOs of United Airlines, Burger King, Sprint, Monstanto, and United Parcel Service of America (UPS). It pointed out to employers that “By recruiting welfare recipients, companies can greatly enlarge their pool of potential entry-level workers”. The chairman of this group was Gerard Greenwald, company chair of United Airlines, which paid wages so low for jobs such as ticket agent, gate agent and reservations representative (barely above the minimum wage) that it had difficulty attracting people, even welfare recipients, to apply for jobs with them.

United Airlines is not unique. Two thirds of employers pay entry level workers less than $6 an hour which is not enough to support two children above the poverty line. In addition 25% of employers offer these workers no benefits at all and 83% pay no sick leave. What is more 36% of entry level positions cannot be reached by public transport, according to the employers themselves and two-thirds of them are part-time.

The US Small Business Administration (SBA) has also established a “Welfare to Work” Initiative to help “small business gain access to a new pool of potential workers.” The SBA promotes Welfare to Work by showing employers how “By hiring former welfare recipients, small business owners can tap into significant wage subsidies and tax breaks as well as gain access to new workers”. This is particularly salient at a time when unemployment is relatively low in the US and many businesses are having trouble finding workers to suit them.

The Work Not Welfare is an alliance of corporate employers who are lobbying to ensure that legislation which offers them free or heavily subsidised welfare workers is not overridden. The alliance includes Pizza Hut, J. C. Penny and various hotel and retail chains.